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1 FTSE 100 stock to buy in July

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FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White
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One FTSE 100 stock I believe could be a good buy for my portfolio in July is Auto Trader (LSE:AUTO). The Auto Trader share price has rallied on the back of positive full-year results announced earlier this month.

FTSE 100 stalwart

Auto Trader is a UK-based online vehicle marketplace. Both registered dealerships and private sellers use the platform. These two types of sellers list their vehicles using the Auto Trader platform and reach millions of potential car buyers across the UK. Auto Trader charges for these listings which is its primary source of income.

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As I write, the Auto Trader share price has increased over 15% this month to date and is currently trading for 648p per share. This is quite impressive considering the FTSE 100 index as a whole has increased 0.5% to date this month.

Since approximately 2019, the Auto Trader share price has been trading for between 500p and 600p per share. The only time it moved away from this bracket was when the market crashed last year and it recorded a market crash low of 372p in March 2020. It recovered quickly to return to the aforementioned bracket just two months after its market crash low.

I believe positive results and the economy bouncing back will result in the Auto Trader share price continuing on an upward trajectory in the coming months ahead.

Positive results

Full-year results for the year ending 31 March were announced on 10 June. Revenue fell by 29% to £262.8m compared to 2020 levels. This affected profit before tax which fell 37% but Auto Trader still reported a healthy profit of £157.4m.

Auto Trader offered its users months of free advertising during the height of the pandemic but was still able to generate a profit due to its high operating profit margin of over 60%. A dividend of 5p per share was declared too as part of these results.

In addition to the financials, Auto Trader also announced other news that was positive in my opinion. Firstly, it was able to reverse an early decision to furlough 25% of its workforce. It also returned all the furlough money to the government. Next, it paid in full tax bills it initially decided to defer. Finally, it acquired a car finance platform which it sees as a vital part of its function going forward as car buying becomes more prevalent through online platforms due to Covid-19.

My verdict

I believe the main risk associated with Auto Trader stock will be the pandemic. If restrictions come into force once more, financials will be affected. We have seen the delay of easing of restrictions recently as well as reports of new variants so this is a very credible risk.

I think Auto Trader is one of the best FTSE 100 stocks for a few reasons. Firstly, it is one of the few companies listed on the FTSE 100 that is debt free. Next, it possesses a huge market share in a sector that others are now attempting to break into. When I think of buying or selling a car, I think of Auto Trader straight away. In addition to this, I believe it will profit from pent-up demand, similar to the housing market, this will benefit Auto Trader’s bottom line and investors alike.

If I were to buy one FTSE 100 stock for my portfolio in July, Auto Trader would be an excellent option.

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Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Auto Trader. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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